It is a time of economic stability against which other periods are compared, using indicators such as price levels, production levels, and business activity data. Base periods are often used to measure a consumer price index, inflation rates, and other variables subject to change over time.
A base period is significant in measuring unemployment, where the current unemployment rate may look high compared to 5 years ago, but not when the scope of the recession that preceded it is taken into account. The data on which a base period is based may be varied to account for different inflation rates in periods or to attempt to compare widely different kinds of data through genuine price indices, which attempt to track the prices in a changing marketplace. Base periods are often used, with the base period being updated at regular intervals.
For example, the base period for a product price is a measure of inflation. It calculates the cost change from a specific period in the past and then relates all subsequent periods to that base time frame, regardless of when it was estimated. Base periods have become more widespread beyond their original use in finance and economics.